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Chesapeake Energy said it is the subject of a U.S. government investigation over possible criminal antitrust violations related to the purchase and lease of oil and gas properties in Michigan.
Chesapeake has received a subpoena from the antitrust division of the Justice Department's Midwest field office, requiring the company to produce documents before a grand jury in the Western District of Michigan, according to a filing with U.S. regulators on Thursday.
In June, Reuters reported that Chesapeake plotted with its top competitor, Canada's Encana Corp, to suppress land prices in the Collingwood shale in Northern Michigan. Emails between Chesapeake and Encana showed the two companies repeatedly discussed how to avoid bidding against each other in a public land auction in Michigan two years ago and in at least nine prospective deals with private land owners.
The Justice Department is "moving criminally," said Darren Bush, a former antitrust attorney for the Department of Justice and a professor of antitrust law at the University of Houston. "They are working their way through the grand jury process to potentially serve up indictments."
Chesapeake's disclosure indicates the Justice Department has moved swiftly on the matter. Reuters published its story on June 25. Just four days later, on June 29, the subpoena was served on Chesapeake, according to the company's quarterly report filed with the Securities and Exchange Commission.
The Reuters report showed Chesapeake and Encana executives, including Chesapeake Chief Executive Aubrey McClendon, exchanged emails about dividing up the nine Michigan counties and landowners in an effort to prevent "acreage prices from continuing to push up," and establishing "bidding responsibilities" ahead of an October 2010 Michigan state land auction.
A spokesman for Encana was not immediately available to comment. A spokesman for Chesapeake declined comment, but the filing said the company is cooperating with the investigations. Chesapeake also said its board of directors is conducting an internal review of the matter.
Price-fixing, bid-rigging and market allocations by competitors are illegal in the United States under the Sherman Antitrust Act, and companies can be fined up to $100 million for each offense.
Chesapeake acknowledged in June that it held talks with Encana but said the two companies never consummated any agreement and never bid jointly. Encana said it held talks with Chesapeake without reaching an agreement on a joint venture. The Canadian company has begun an internal inquiry led by the chairman of its board of directors.
Chesapeake said in the filing with the U.S. Securities and Exchange Commission that it has also received demands for documents and information from state governmental agencies in connection with other probes relating to oil and gas rights transactions.
A spokeswoman for the Michigan Attorney General's office, which has also opened an investigation into possible collusion between Chesapeake and Encana, declined to comment. A Justice Department spokeswoman did not immediately respond to a request for comment.
Chesapeake has been operating under a cloud of legal and governance issues following Reuters investigations showing potential conflicts of interest on the part of McClendon as well as the collusion allegations.
Shares of Chesapeake fell 2.5 percent to $19.80 from a New York Stock Exchange close of $20.31 in post market trading.
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